European CO2 emission trading moves closer

The European Commission has approved eight more national allocation plans (Naps) for the EU carbon dioxide (CO2) emissions trading scheme. The development means industry in 16 countries is now cleared to start trading from the scheme's scheduled launch just 73 days from now. It is uncertain how many of the remaining nine will be ready in time.

On Wednesday the Commission approved plans from Belgium, Estonia, Latvia, Luxembourg, Portugal and Slovakia. Each government had agreed to make cuts in the number of emission allowances to be allocated to participating companies in the scheme's 2005-7 phase, it added.

France and Finland's plans were also approved, but with conditions. In particular, the Commission believes the French government's proposal is based on exaggerated emissions growth forecasts and wants it to cut allocations by a further 4.5m tonnes.

The French government has already agreed to a second demand by bringing 750 more installations in to the scheme. The Commission's quibble with Finland is more minor. It wants Helsinki to extend the scheme to four plants on the land islands in the Baltic Sea.

Wednesday's announcement marks a second wave of approvals for national plans. A first series were cleared in July. Since then, however, the German government has challenged one of the conditions imposed on its plan at the European court of justice.

Berlin is defending its right to make "ex post" adjustments to the number of allowances in circulation once the scheme has started. Several other member states had intended to use a similar mechanism. All have now dropped their plans under pressure from the Commission.

Added to the fact that draft plans from Italy, Spain and Poland are incomplete or have yet to be assessed, the German and French problems leave question marks hanging over trading in five of the EU's six largest countries.

According to the Commission, plans approved so far - with or without conditions - cover 7,200 of the 12,000 plants due to have emissions caps. The allowances sanctioned amount to 3.8bn tonnes of CO2. Of the nine EU states whose plans have not yet been approved, only Greece has yet to submit even a draft.

The Commission says it has forced cuts of 48m tonnes of allowances from the 16 approved plans - or just over 1% of the total amount proposed. The biggest cuts - up to 20% - were in plans from the new eastern states, where Kyoto targets will be easily met. Some governments there had mistakenly believed they could allocate many more allowances than firms needed, allowing them to make big profits on the surplus.

It remains to be seen whether the Commission's efforts will placate critics of the Naps. The UK has complained of potential distortions of competition, while other analysts claim the Naps are too weak to force industry onto a Kyoto-compliant path.